Overbuilding Overblown? Apartment Markets Expand

Apartment markets rebounded from a soft January, according to the latest National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions.

Last years concerns of overbuilding or lack of capital have largely eased for the first time since April 2013.

Supply appears to have ramped up enough to meet approximate ongoing demand with few, if any, signs of irrational exuberance, said NMHC Senior Vice President of Research and Chief Economist Mark Obrinsky. A handful of submarkets are facing a temporary surge in new deliveries that may put downward pressure on occupancy rates or rent growth. However, increased development costs could well keep a lid on new supply.

According to the survey, the Market Tightness Index rose from 41 to 56. Almost half (47 percent) of respondents reported unchanged conditions, and approximately one-third (32 percent) saw conditions as tighter than three months ago, in contrast with Januarys survey, where almost one-third saw conditions as looser than three months ago. This is the first time the index has indicated overall improving conditions since July 2013.

The Sales Volume Index also rose from 41 to 52, the first time the index has been above 50 in a year. Almost half (43 percent) of respondents felt that sales volumes were unchanged from three months earlier, while a slightly higher share of responses noted higher sales (28 percent) than lower sales (23 percent).

The improvement in sales volume comes as a bit of a surprise, both because volume generally falls off seasonally at the beginning of the calendar year and because there has been a dearth of product available. It will be interesting to see whether the results are further borne out in transactions data over the next few months, said Obrinsky.

The Equity Financing Index rose slightly from 50 to 53. The majority of respondents (58 percent) continue to report that the availability of equity financing is unchanged from three months ago”a similar result to the past two quarterly surveys. One-fifth of respondents (20 percent) believed that financing was more available than three months prior, slightly higher than the amount of respondents (13 percent) that believed financing was less available.

The Debt Financing Index had the largest increase, rising to 63 from 42. Almost one-third (30 percent) believed that conditions are better, and only 3 percent felt that conditions were worse, a marked decline from Januarys Quarterly Survey, when 30 percent felt conditions were worse.

A strong majority of respondents (80 percent) reported that land costs for new development have increased from last year. 34 percent reported increases of 10 percent or more and 46 percent noted increases of less than 10 percent. By contrast, just under one-fifth (19 percent) reported land costs unchanged from the previous year. (Note: these percentages exclude those who responded Dont know/not applicable.)

The April 2014 Quarterly Survey of Apartment Market Conditions was conducted April 14-April 21, 2014; 133 CEOs and other senior executives of apartment-related firms nationwide responded.

Based in Washington, D.C., the National Multifamily Housing Council (NMHC) is the leadership of the trillion-dollar apartment industry. For more information, contact NMHC at 202/974-2300, e-mail the Council at [email protected], or visit NMHC’s web site at www.nmhc.org.

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